B-149685, DEC. 30, 1965, 45 COMP. GEN. 370

SMALL BUSINESS ADMINISTRATION - LOANS - SALE BY BROKERS THE SALE WITH RECOURSE BY THE SMALL BUSINESS ADMINISTRATION TO PRIVATE FINANCIAL INSTITUTIONS OF SUBORDINATE DEBENTURES PURCHASED FROM SMALL BUSINESS INVESTMENT COMPANIES UNDER SECTION 302 (A) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958 (15 U.S.C. 682 (A) (, THE DEBENTURES AT TIME OF PURCHASE HAVING A MATURITY OF 20 YEARS, AND WITH AMORTIZATION OF THE PRINCIPLE BEGINNING IN THE 11TH YEAR, A REMAINING TERM AT TIME OF SALE RANGING FROM 13 TO 20 YEARS, IS APPROVED, THE EXTENSION OF THE LOAN SALES PROGRAM ALREADY APPROVED CONFORMING WITH THE STATUTORY DIRECTIVE IN SECTION 102 OF THE ACT (15 U.S.C. 661) THAT THE LOAN PROGRAM INSURE THE MAXIMUM PARTICIPATION OF PRIVATE FINANCING SOURCES, AND NO BASIS EXISTING FOR DISTINGUISHING SECTION 302 (A) DEBENTURES FROM DEBT INSTRUMENTS ACQUIRED UNDER SECTION 303 (B) LOANS AND DISPOSED TO PRIVATE BROKERAGE CONCERNS UNDER THE BROAD AUTHORITY PRESCRIBED TO THE ADMINISTRATOR OF THE SMALL BUSINESS ADMINISTRATION PURSUANT TO SECTIONS 5 (B) (2) AND 5 (B) (7) OF THE SMALL BUSINESS ACT TO SELL LOANS.

TO THE EXECUTIVE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, DECEMBER 30, 1965:

BY LETTER OF NOVEMBER 29, 1965, YOU REQUESTED OUR CONCURRENCE IN YOUR OPINION AS TO THE LEGAL PROPRIETY OF EXTENDING THE LOAN SALES PROGRAM, WHICH WE APPROVED BY LETTER DATED NOVEMBER 16, 1965, 45 COMP. GEN. 253, TO AN IDENTICAL PROGRAM INVOLVING DEBENTURES ACQUIRED BY THE SMALL BUSINESS ADMINISTRATION FROM SMALL BUSINESS INVESTMENT COMPANIES PURSUANT TO SECTION 302 (A) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, 15 U.S.C. 682 (A).

IN CONFORMITY WITH THE STATUTORY DIRECTIVE CONTAINED IN SECTION 102 OF THE ACT, 15 U.S.C. 661, THAT THE SMALL BUSINESS INVESTMENT COMPANY PROGRAM "BE CARRIED OUT IN SUCH MANNER AS TO INSURE THE MAXIMUM PARTICIPATION OF PRIVATE FINANCING SOURCES," SBA HAS ATTEMPTED DURING THE PAST YEAR TO SELL FROM ITS PORTFOLIO VARIOUS INSTRUMENTS OF SBIC INDEBTEDNESS TO PRIVATE FINANCIAL INSTITUTIONS. IN MARCH OF THIS YEAR, TWO SUCH PROGRAMS WERE INITIATED, ONE OF WHICH INVOLVED THE SALE WITH RECOURSE TO PRIVATE FINANCIAL INSTITUTIONS OF LOANS ORIGINALLY MADE DIRECTLY BY THE SMALL BUSINESS ADMINISTRATION TO SMALL BUSINESS INVESTMENT COMPANIES UNDER SECTION 303 (B) OF THE ACT, 15 U.S.C. 683 (B), WHILE THE SECOND INVOLVED THE GUARANTY BY SBA UNDER SECTION 303 (B) OF LOANS MADE IN THE FIRST INSTANCE BY PRIVATE FINANCIAL INSTITUTIONS TO SMALL BUSINESS INVESTMENT COMPANIES. IN NOVEMBER OF THIS YEAR, A THIRD PROGRAM WAS INSTITUTED WHEREBY SBA SOLD SECTION 303 (B) LOANS FROM ITS PORTFOLIO WITH RECOURSE TO PRIVATE FINANCIAL INSTITUTIONS THROUGH THE MEDIUM OF A PRIVATE BROKERAGE FIRM. IN EACH OF THESE SITUATIONS, WE AGREED THAT THE PROGRAM WAS AUTHORIZED.

IN PURSUIT OF THE CONGRESSIONAL POLICY TO ENCOURAGE PRIVATE PARTICIPATION IN SBA FINANCING, SBA NOW PROPOSES ANOTHER PROGRAM: TO SELL ADDITIONAL OBLIGATIONS PURCHASED BY SBA FROM SMALL BUSINESS INVESTMENT COMPANIES. UNDER THE PROPOSED PROGRAM, SBA WOULD SELL WITH RECOURSE TO PRIVATE FINANCIAL INSTITUTIONS SUBORDINATED DEBENTURES ORIGINALLY PURCHASED BY THE SMALL BUSINESS ADMINISTRATION FROM SMALL BUSINESS INVESTMENT COMPANIES UNDER SECTION 302 (A) OF THE ACT, 15 U.S.C. 682 (A). AT THE TIME OF THEIR PURCHASE BY SBA, THESE DEBENTURES HAD A MATURITY OF 20 YEARS, WITH AMORTIZATION OF THE PRINCIPAL BEGINNING IN THE 11TH YEAR; AT THE TIME OF SALE UNDER THIS PROGRAM, THE REMAINING TERM OF THOSE DEBENTURES WOULD RANGE FROM 13 TO 20 YEARS.

IN OUR OPINION OF NOVEMBER 16, 1965, WE HELD THAT THE SELLING OF THE DEBT INSTRUMENTS DISCUSSED THEREIN THROUGH THE FACILITIES OF A PRIVATE BROKERAGE CONCERN IS AUTHORIZED BY SUBSECTION 5 (B) (2) AND SUBSECTION 5 (B) (7) OF THE SMALL BUSINESS ACT, 15 U.S.C. 634, WHICH WERE ALSO RELIED UPON IN OUR PRIOR DECISION OF MARCH 15, 1965, 44 COMP. GEN. 549. STATED THAT:

* * * THESE PROVISIONS, MADE APPLICABLE TO FUNCTIONS UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958 BY SECTION 201 THEREOF, 15 U.S.C. 671, GIVE TO THE ADMINISTRATOR OF SBA BROAD AUTHORITY NOT ONLY AS TO THE POWER TO SELL LOANS BUT ALSO AS TO THE TERMS AND METHODS BY WHICH SUCH SALES MAY BE EFFECTED. THEY AUTHORIZE THE ADMINISTRATOR TO:

"* * * ASSIGN OR SELL AT PUBLIC OR PRIVATE SALE, OR OTHERWISE DISPOSE OF FOR CASH OR CREDIT, IN HIS DISCRETION AND UPON SUCH TERMS AND CONDITIONS AND FOR SUCH CONSIDERATION AS THE ADMINISTRATOR SHALL DETERMINE TO BE REASONABLE, ANY EVIDENCE OF DEBT, CONTRACT, CLAIM, PERSONAL PROPERTY, OR SECURITY ASSIGNED TO OR HELD BY HIM IN CONNECTION WITH THE PAYMENT OF LOANS GRANTED UNDER THIS CHAPTER * * *.

"* * * TAKE ANY AND ALL ACTIONS * * * DETERMINED BY HIM TO BE NECESSARY OR DESIRABLE IN MAKING, SERVICING, COMPROMISING, MODIFYING, LIQUIDATING, OR OTHERWISE DEALING WITH OR REALIZING ON LOANS * * *.'

IN THE LIGHT OF THESE BROAD AUTHORITIES WE PERCEIVED OF NO OBJECTION TO THE PROPOSED PROGRAM.

WE CONCUR THAT THE ABOVE REASONING IS EQUALLY APPLICABLE TO AN IDENTICAL PROGRAM INVOLVING THE DEBENTURES ACQUIRED UNDER SECTION 302 (A) OF THE ACT. THERE DOES NOT APPEAR TO BE ANY BASIS FOR DISTINGUISHING DEBENTURES ACQUIRED UNDER SECTION 302 (A) FROM OTHER EVIDENCE OF INDEBTEDNESS, IN CONNECTION WITH THE APPLICABILITY OF THE CITED AUTHORITIES.